No lines on the horizon

TOP 1000/TELCOS:GIVEN ITS dominance of the local telephony market, it is not surprising that the former State telco Eircom continues to be the largest telecommunications company with its revenues of €2.06 billion placing it as Ireland's 26th largest firm.

Almost every home in the country is served by Eircom – either directly or through a service re-sold by its competitors. But despite its direct 68 per cent share of the fixed-line market, the telco is in a state of flux. An unsolicited bid from the company by an Australian group, TaemasBridge, claims that Eircom faces a looming default on its €3.8 billion debt, a claim rejected by company management.

Meanwhile management wants to cut 1,250 of the current 7,500-strong workforce, in an attempt to save €130 million each year. Eircom’s network, built at great cost to the State, has also suffered from under-investment during the series of ownership changes in the last decade. The company has put on hold plans for next-generation networks.

When former Vodafone Ireland boss Paul Donovan takes over as Eircom chief executive on July 1st, he will be familiar with one of the challenges facing Eircom – the substitution of fixed-line telephony

with mobile. Our figures show his biggest competitor in revenue terms is his old employer – Vodafone Ireland – which had revenues of €1.25 billion in the year to March 2008. Parent Vodafone

Group reported its 2009 financials on May 20th, after the May 15th cut-off date for our ranking, but data released at that time showed its Irish subscriber base fell from 2.32 million to 2.26 million over the course of the year while the average monthly customer spend was down 6 per cent to €39.10.

Not far behind is Vodafone’s long-time rival, the Telefonica-owned O2 Ireland, which ranks 56th with revenues of €941 million. O2 is one place ahead of the Irish arm of BT, the fixed-line operator that O2 was hived off from in 2001 at the height of the telecoms and technology boom.

Again, subsequent quarterly figures from O2 have shown service revenues down 5.6 per cent year-on-year. Eircom’s mobile arm Meteor has been growing fast – breaking the one million subscriber mark last Autumn – thanks to value-for-money deals and a willingness to target migrants with low rates for international calls.

Its estimated revenues of €280 million put it on a par with satellite TV operator Sky Ireland, but given that mobile penetration is now at 121 per cent of the population, all mobile operators are going to struggle for growth. The fourth network operator, 3 Ireland, had revenues of just €50 million, but this is a 2007 figure.

Although mobile-fixed substitution has long been a factor in the Irish market – with many new homes not connected to landlines – another significant trend is the ability to bundle together fixed and mobile services. This drove Vodafone to acquire Eircom-reseller Perlico for an initial €32 million, while Eircom has recently been censured by the regulator for offering packages which included free calls to Meteor mobiles.

Perhaps best positioned to capitalise on this convergence is cable operator UPC, which had revenues of €212 million in 2007. When a €1 billion upgrade of the former Chorus and NTL networks is completed shortly it will be able to offer phone, broadband and television services.

Already it claims to be the second-largest provider of broadband in the State after Eircom, with 111,400 subscribers by last March.

Telco providers who compete with Eircom simply on the basis of cheaper fixed-line services are finding it difficult. BT has been driving growth through its managed-services business. Its revenues of €910 million were down from €1 billion in 2008.

Of the indigenous alternative operators, Imagine is faring best with turnover of €94 million in 2008. On the business side, US operator Verizon’s Irish subsidiary had sales of just over €54 million, but posted a pre-tax loss of €3.3 million.

Others faring well in the Irish telecoms space are the ubiquitous Finnish handset manufacturer Nokia, whose small Irish team drummed up revenues of €251.4 million which they turned a pre-tax profit of €5.9 million on. Not far behind is the relatively low-profile Dublin-based 20:20

Mobile which has been built up to revenues of €220 million.

A number of handset distributors including Radius (325), BPI Telecom (395), and Oyster Group (742) also make the ranking with strong revenues. Retailer Carphone Warehouse posted revenues of €93.5 million in the year to March 2007. Directory enquiries business Conduit also makes the listing with revenues of €56.3 million in the same year.

The Irish love of the mobile, as well as the recent conversion to broadband, has helped the bouyancy of the telecommunications market in recent years. But while revenues have

been growing, telecoms charges – from per-minute rates to the price of new handsets – have been heading downward and squeezing margins.

That trend is only likely to continue in the recession. On the flip side businesses may actually increase their telecoms spend during tight times to reduce other costs such as travel. Taken in tandem with the corporate manoeuvring at Eircom, the telecoms landscape is likely to be quite different in a year’s time.